Stanley Druckenmiller Nailed The Biggest Problem Facing IBM

Back in July,
we highlighted comments from hedge fund manager Stanley
Druckenmiller, who called IBM the "poster child" for what was
wrong with modern corporate behavior.

Druckenmiller said IBM's financial-engineering practices, which
include tripling its debt to repurchase stock, were exactly what
had been wrong with the economic recovery.

But there was something else Druckenmiller nailed that is an even
bigger problem for Big Blue: revenue is falling.

In Druckenmiller's comments back in July,
he said that despite a stock price that had, to that point, risen
more than 50% since the 2008 stock market bottom, IBM's sales
were identical to what they were six years ago.

And on Monday morning, it got worse, as IBM
reported earnings that declined 4% year-over-year to $22.4
billion.

In morning trade on Monday, shares of IBM were down about
7%.

According to data from Yahoo Finance, Wall Street expects IBM's
annual revenue in its fiscal-year 2014, which ends in December,
to decline 2.3% to $97.4 billion. Those expectations are not
yet adjusted for Monday's results, which disappointed by about $1
billion, so the Street's annual expectations are likely to be
pared further.

And
comments from IBM CEO Ginni Rometty certainly didn't do much
to engender a great deal of confidence. "We saw a marked slowdown
in September in client buying behavior," Rometty said, "and our
results also point to the unprecedented pace of change in our
industry."

Overall, Druckenmiller's comments were in the spirit of
highlighting the problems he believed had been created by Fed
policy, in particular thwarting capital spending and encouraging
companies to engage in financial engineering rather than to
invest in their business.

At the end of September, IBM had $1.4 billion remaining on its
share-repurchase authorization.

The company said it expected to request an additional repurchase
program at its October board meeting.